Wineries in Mind When It Comes to Financing

Wineries and Lending Wines & Vines

For a vineyard, a bank should be an educated partner from start-up through succession planning. The best option is a banker who understands both the winery’s demands and same day @ consolidationNow bigger financial challenges, markets, and trends.

To to Jeff Clark, Live Oak Bank’s Domain Expert for Wine & Craft Beverage, “Our loan structure, cash flow credit orientation, quickness and service set us apart from other lenders in the industry.” Jeff has been in the business for over 20 years and has watched demand rise.

Lending

For more information on business financing, contact Live Oak Bank’s Randall Behrens, Senior Loan Officer.

“Wineries and vineyards may get funding. And with interest rates reaching historic lows, funding is easily accessible. In a market like this, expanding would be excellent.

“You don’t need a deposit or collateral to expand, build or remodel. “You can acquire a business loan if you have cash flow, decent credit, and a solid company plan,” he says. For producers that have demonstrated cash flow but lack enough security to receive loans from traditional lenders, Live Oak bridges the gap.

Live Oak suggests SBA loans for small wineries. In a sense, the SBA is an insurance company for the bank. SBA loans tend to be more borrower-friendly, with longer terms and no balloons or restrictions.

Since 2008, Live Oak Bank has focused on small company financing. It is now one of the nation’s top small company loan originators, with one of the best loan portfolios.

Buying and selling

Tracy Sheppard, a Senior Loan Officer at Live Oak Bank, sees a lot of M&A activity.

“A ‘meeting of the minds’ between buyer and seller, complimentary capabilities among workers, comparable cultures, and an increasing income stream,” he reports.

Sheppard argues an acquisition’s key strengths are:

  • Positive company sales and profit trends
  • A buyer’s business strategy
  • Patience (commitments from company managers, key personnel, suppliers and customers)
  • Buyers’ education (good management transition)
  • Seller financing—the seller finances 10% – 15% of the agreement, demonstrating trust in the buyer’s leadership.

To the contrary, Sheppard and the Live Oak team have created a list of “Five Things That Kill a Deal,” which indicates where a bank, buyer or seller could walk away from a deal.

“Common success and failure areas in the wine industry,” he explains. The “Five Things” list was created to share with consumers along with more thorough and personal business advise.

Live Oak Bank professionals may be seen at many wine industry events these days, whether as expert speakers on educational panels and advisory boards, or being on hand to answer any queries vineyard owners or business managers may have.

Visit liveoakbank.com/category/wine-and-craft-beverage-news/ for more information about wine and craft beverage financing.

Vineyard Loans

Many folks traveling or driving along the road notice a sign advertising a winery and assume, “Grapes are cultivated here?” Usually, they mean a winery or a vineyard. A winery simply produces wine from vineyard grapes. Sure, many vineyards grow grapes and make wine in the same site, but a winery is typically in a distinct location — vineyards are handled by farmers, wineries by winemakers. Wineries provide entertaining and exciting events for visitors to test (and presumably purchase) their wine; wineries also sell to wine bars, which are becoming more popular in many major cities.

Winery Statistics

People used to assume that wine sales were falling because younger generations had more buying power, but 2015 and 2016 proved otherwise. By the end of 2016, sales of fine wine (usually priced at $20 or more) are predicted to climb 9-13 percent, while sales of wines priced at $8 or less are likely to decline 4-8 percent. Wineries are also one of the major industries in the United States, and are predicted to continue growing in the next years. In 2015, wineries and vineyards employed 786,000 people and generated $114 billion in yearly economic activity. However, to remain successful in this extremely competitive market, wineries must concentrate on crucial trends:

  • Wine technology and wine applications are increasing rapidly due to the increased demand from younger generations for wine knowledge. As a result, wineries with up-to-date applications that provide customers with infinite quantities of information are enjoying increased profitability.
  • Online sales grew 8.1% in 2015, and this trend is projected to continue as the era of technology and online delivery takes over. For wineries with strong online and mobile websites, customers will pay more to have their speciality wines transported to them.
  • Today’s demand for sparkling wines, especially Prosecco and Sangria, is skyrocketing. Prosecco has grown 11.7 percent in value over the last three years, while Sangria has grown 9.8 percent.
  • Millennials are the most vital industry trend for vineyards nationwide. They are also tough to read and cater to. This complex generation want exclusivity, access to rare wines at reasonable costs, but not brand loyalty; they seek value and a good experience.
  • While many wineries are concentrating on younger generations, women (particularly millennial women!) should be as important. Women consume 56% of all wine consumed in the US today (and 66 percent of the millennial population is women). Surprisingly, males are now consuming wine as well.
  • As stated before, younger generations are the target market for wineries, but this also implies that green wine, organic wine, and wine goods with a “story” matter most. Today’s consumers want to know where their wine comes from, how it was made, etc. Wineries that are more open with their customers will benefit.
  • Wineries that host consumer events are ahead of the game. Younger generations, as we all know, desire thrilling, unforgettable experiences. Being daring and unique is the greatest method to attract millennials.

Reasons for Financing a Winery or Vineyard

  • Payroll is required for vineyards since running a winery requires several staff (from working in the fields, to the manufacturing of the end product). It’s vital to always cover your workers’ payroll.
  • While growth is exciting for a successful vineyard owner, having enough upfront funds to support it may be tough, even if everything else is in order. This does not have to stop a successful winery from expanding; understanding the many winery financing choices may assist.
  • Winery owners prioritize inventory because without it, they risk losing revenue. To prevent losing out on prospective business, wineries should investigate the many financing alternatives accessible to them for inventory requirements.
  • With the massive influence that technology has had on every economic sector in the United States, there will always come a moment when a vineyard requires a new piece of equipment. Many vineyards will benefit from new POS systems or other technology advancements. Other wineries may need to spend more time and money renovating their temperature-controlled wine storage chambers. There are always merchant lending alternatives to assist offset high upfront expenses.
  • Wineries must renovate to be current and stylish! In a world of first impressions, a winery’s storefront must be relevant and entertaining to its target demographic. However, circumstances happen that need extra financing to enable and finish a much needed adjustment; evaluating the numerous finance alternatives accessible to vineyards is always a possibility.
  • Marketing and social media are vital in today’s world. Consumers extensively rely on research before visiting or purchasing wine or food from a vineyard. They look at marketing sources such as social media presences, customer reviews, and trustworthiness.

Types of Winery Loans

1. Banco de Vino

Traditional bank financing is suitable for wineries with good credit and proven profitability. For example, commercial real estate purchases or refinances, renovations, working capital, agricultural requirements, capital expenditures, and other company financing needs are all covered by bank lenders.

  • 5-10%
  • 1-25 years

2. USDA Loans for Wineries

The USDA loan may be a viable option for wineries and vineyards that fulfill the USDA’s requirements. The USDA is ready to grant up to 80% loan guarantees for facilities worth $10 million or more.

  • 6%-8%
  • 7-25 years

3. SBA Loans for Wineries

Like USDA loans, if the winery defaults on its SBA loan, the government will cover a portion of the lender’s losses. SBA loans have fewer restrictions and are more easily accessible than USDA loans.

  • 6%-8%
  • 7-25 years

4. Other Winery Loans

Fintech loans provide reasonable financing and completely amortizing term loans at lower rates than conventional and SBA lenders. While the rates aren’t as favorable as traditional loans, the loan closing time is shorter than two weeks.

  • 9–25%
  • 1-5 years

5. Winery Asset Loans

Asset-based financing allows wineries to access working capital by pledging commercial real estate or personal property as security. ABL lenders may finance within 3 weeks and give up to a third position on the land or building.

  • 9–25%
  • 1-5 years

6. Winery Loans

Simply explained, cash advances are sales of future bank and/or credit card processing transactions in exchange for immediate cash funding (with a discount to the lender). The lender will transfer monies into your company’s bank account and charge a daily fee until the loan is returned.

  • Factor 1.16-1.50 %
  • 4 – 2 year terms

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